Congress OKs $1.9 trillion boost in debt limit

NEW YORK (CNNMoney.com) -- The House on Thursday approved a record $1.9 trillion increase in the cap on how much the government can borrow.

The House also approved a measure that imposes tougher budget rules on lawmakers.

The votes, which broke down largely along party lines, come one week after the Senate approved both measures.

The legislation, which is expected to be signed by President Obama, will raise the debt ceiling to $14.294 trillion.

The debt limit hike is expected to cover the Treasury's borrowing needs past the November mid-term elections and into 2011. That means lawmakers up for re-election won't need to take another politically sensitive vote before the polls open.

If the ceiling were ever breached, the country would effectively be in default. That would slam bonds, the dollar and creditors' portfolios.

As of Wednesday, debt accrued to date was $12.304 trillion, or roughly $90 billion shy of the $12.394 trillion statutory limit currently in place.

Voting to increase an already record-high debt limit was anathema to the fiscal conservatives in the House known as the Blue Dogs. They have been pushing for stricter "pay as you go" budget rules that would curb lawmakers' ability to run the debt up in the future.

To smooth passage Thursday, House leaders used a procedural strategy to allow the Blue Dogs to vote against the debt ceiling hike but for the pay-go legislation.

The pay-go rules would require lawmakers to find ways to pay for proposed spending increases in entitlement programs or for any tax cuts by offsetting them with higher taxes or reduced spending elsewhere in the budget.

Funding for entitlement programs -- such as Medicare and Social Security -- is considered mandatory spending and not subject to annual review by legislators.

"Today will help usher out an era of irresponsibility and begin putting the country back on a fiscally sustainable path," Obama said after the vote.

Pay-go doesn't reduce the debt already accrued, but it would put the brake on future increases -- a helpful first step, budget experts say.

The effectiveness of pay-go, however, depends on its parameters. The strongest form would not allow any policy to be exempt.

However, the pay-go measure that the House and Senate have now passed exempts some expensive measures, such as the cost of a permanent extension of middle class tax cuts. It would also exempt the Medicare "doctor fix" for 5 years and the extensions of relief from the Alternative Minimum Tax and the estate tax for two years.

Supporters of pay-go often credit the policy with helping the Clinton administration create an annual budget surplus after combating the country's annual deficits in the 1990s. But the pay-go law in place at the time did not exempt any expensive policies, said budget expert Charles Konigsberg, author of the book "America's Priorities."

-- CNN congressional producer Deirdre Walsh contributed to this report.